SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
[Fee Required]
For the fiscal year ended December 31, 1996
[ ] Transition Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
[No Fee Required]
For the transition period from to
Commission file number 1-19254
Lifetime Hoan Corporation
(Exact name of registrant as specified in its charter)
Delaware 11-2682486
(State or other jurisdiction of incorporation or
organization) (I.R.S. Employer Identification No.)
One Merrick Avenue Westbury, NY 11590
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code
(516) 683-6000
Securities registered pursuant to Section 12(b) of the
Act: None
Securities registered pursuant to Section (g) of the Act:
Common Stock, par value $.01 per share
(Title of Class)
Indicate by check mark whether the registrant (1)
has filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter
periods that the registrant was required to file such
reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No___
The aggregate market value of 5,666,000 shares of the
voting stock held by non-affiliates of the registrant
as of February 28, 1997 was approximately
$62,326,000. Directors, executive officers, and
trusts controlled by said individuals are considered
affiliates for the purpose of this calculation, and
should not necessarily be considered affiliates for
any other purpose.
The number of shares of Common Stock, par value $.01
per share, outstanding as of February 28, 1997 was
12,422,057.
LIFETIME HOAN CORPORATION
FORM 10-K
TABLE OF CONTENTS
PART 1
1. Business 3
2. Properties 7
3. Legal Proceedings 8
4. Submission of Matters to a Vote
of Security Holders 8
PART II
5. Market for the Registrant's Common Stock and Related
Stockholder Matters 9
6. Selected Financial Data 10
7. Management's Discussion and Analysis of Financial
Condition
and Results of Operations 11
8. Financial Statements and Supplementary Data 14
9. Changes in and Disagreements with Accountants on
Accounting
and Financial Disclosure 14
PART III
10. Directors and Executive Officers
of the Registrant 15
11. Executive Compensation 16
12. Security Ownership of Certain
Beneficial Owners and Management 16
13. Certain Relationships and
Related Transactions 16
PART IV
14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 16
Exhibit Index 16
Index to Financial Statements and Financial Statement
Schedule F-1
Signatures
2
PART I
ITEM 1. BUSINESS
General
Forward Looking Statements: This Annual Report on Form
10-K contains certain forward-looking statements within
the meaning of the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995,
including statements concerning the Company's future
products, results of operations and prospects. These
forward-looking statements involve risks and
uncertainties, including risks relating to general
economic and business conditions, including changes which
could affect customer payment practices or consumer
spending; industry trends; the loss of major customers;
changes in demand for the Company's products; the timing
of orders received from customers; cost and availability
of raw materials; increases in costs relating to
manufacturing and transportation of products; dependence
on foreign sources of supply and foreign manufacturing;
and the seasonal nature of the business as detailed
elsewhere in this Annual Report on Form 10-K and from
time to time in the Company's filings with the Securities
and Exchange Commission. Such statements are based on
management's current expectations and are subject to a
number of factors and uncertainties which could cause
actual results to differ materially from those described
in the forward-looking statements.
Lifetime Hoan Corporation designs, markets and
distributes household cutlery, kitchenware, cutting
boards and other houseware products. Items are sold under
both owned and licensed tradenames. Owned tradenames
include Hoffritzr, Tristarr, Old Homesteadr and Hoanr.
Licensed tradenames include Farberwarer and various names
under licenses from The Pillsbury Company and The Walt
Disney Company, Inc. The Farberwarer tradename is used
pursuant to a 200 year royalty-free license. The
Company, incorporated in Delaware in 1983, is the
successor to Lifetime Cutlery Corporation, which was
founded in 1945. As used herein, unless the context
requires otherwise, the terms "Company" and "Lifetime"
means Lifetime Hoan Corporation and its subsidiaries.
Sales growth is stimulated by expanding product offerings
and penetrating various channels of distribution.
Lifetime has developed a strong consumer franchise by
promoting and marketing innovative products under Company
trade names and through licensing agreements. In
addition, the following acquisitions have been made which
have had a material impact on the Company's business:
Hoffritzr
In September 1995, the Company acquired the Hoffritzr
trademarks and brand name. The Company uses the name on
various products including cutlery, scissors, personal
care and kitchen implements. The Company believes that
Hoffritzr is a respected name with a history of quality.
The acquisition has enabled the Company to sell products
at higher price points than the rest of the Company's
products. The Company shipped over 150 new items under
the Hoffritz brandname during 1996, with the total line
expected to exceed 300 items. In addition, the new
products are marketed through a newly developed "shop
within a store" concept in department and specialty
stores. Shipments of Hoffritzr products began in the
first quarter of 1996.
3
Farberwarer
In April 1996, the Company entered into an agreement to
acquire certain assets of Farberware, Inc.
("Farberware"). Under the terms of the acquisition
agreement, and a joint venture agreed to by the Company
and Syratech Corporation in connection therewith, the
Company acquired a 200 year, royalty-free, exclusive
right to use the Farberwarer name in connection with the
product lines covered by its then existing license
agreement, which included kitchen cutlery products
(excluding flatware) and kitchen tools such as spatulas,
barbecue forks and "gadgets" (but excluding appliances),
plus certain limited additional products. This agreement
enables the Company to market products under the
Farberwarer name without paying additional royalties.
The Company also acquired 50 Farberware outlet stores. In
addition, rights to license the Farberwarer name for use
by third parties in certain categories are held by a
joint venture, owned equally by the Company and a wholly
owned subsidiary of Syratech Corporation. The purchase
price consisted of cash of $12.7 million.
Cutlery
The Company designs, markets and distributes a broad
range of household cutlery under a variety of Company
tradenames and the Farberwarer royalty-free license.
Company tradenames in 1996 included Hoffritzr and
Tristarr. Cutlery is sold individually in blister
packages, boxed sets and in sets fitted into wooden
counter blocks, resin carousels and, new in 1997,
stainless carousels in assortments of 4 to 20 knives with
certain sets including steak knives, household shears and
other kitchen tools.
Cutlery is generally shipped as individual pieces from
overseas manufacturers to the Company's warehouse
facilities in central New Jersey. This permits the
Company to configure the quantity, style and contents of
cutlery sets to meet customer requirements as to product
mix and pricing. The sets are then assembled and
packaged for shipment to customers.
Kitchenware
The Company sells over 2,750 kitchenware items for use
around the home under various Company tradenames
including Hoffritzr, Hoanr, Smart Choice and HealthWorks
and under licensed Farberwarer, Pillsbury and cDisney
tradenames. The kitchenware items are manufactured to the
Company's specifications outside the U.S. and are
generally shipped fully assembled. These items are
typically packaged on a card which can be mounted for
sale on racks at the retailers' premises for maximum
display visibility. Products include the following:
Kitchen Tools and Gadgets
Food preparation and serving tools such as metal,
plastic and wooden spoons, spatulas, serving forks,
graters, strainers, ladles, shears, vegetable and fruit
knives, juicers, pizza cutters, pie servers, and slicers;
Baking, measuring, and rangetop products such as
cookie sheets, muffin, cake and pie pans, drip pans,
bake, roast and loaf pans, scraper sets, whisks, cutters,
spatulas, rolling pins, baking shells, baking cups,
measuring devices, thermometers, timers and burner
covers;
Barbecue accessories, in sets and individual pieces,
featuring such items as spatulas, tongs, forks, skewers,
hamburger and fish grills, brushes, corn holders, food
umbrellas, nut and lobster crackers and clam knives;
4
Mickey Unlimited and Mickey Stuff for Kids, child-
oriented products featuring Mickey and Minnie Mouse on
such items as bag clips, magnetic note holders, party
goods, magnetic picture frames, can covers, bottle
stoppers and flatware;
Pillsbury, one of America's best known brands of
baking accessories featuring the Poppin-Fresh logo on
such items as pastry brushes, spatulas, whisks, spoon and
cup sets, cookie cutters, mixing spoons and magnets;
Green Giantr, vegetable-related kitchen accessories
capitalizing on the recognition factor of the Green
Giantr character, including items such as peelers, can
openers, kitchen hooks, magnets, spoons, steamers and
strainers.
Smart Choice
J-Hook and Clip Strip merchandising systems which
enable the Company to expand its product offering and
create additional selling space in the stores. The line
consists of a variety of quality, novelty items designed
to trigger impulse buying. This line is targeted towards
supermarkets and mass merchants.
HealthWorks
Unique household products which emphasize healthy
cooking and eating. Products include nonstick roasters,
roast racks, broiling pans, steamers, and clay roasters
and steamers.
Cutting Boards
The Company designs, markets and distributes a full
range of cutting boards made of polyethylene, wood, glass
and acrylic. All cutting boards except for glass are
imported. Glass cutting board blanks are purchased
domestically and are finished and packaged in the
Company's warehouse facilities in central New Jersey.
Boards are also cross-merchandised with cutlery and
gadgets.
New Products
The Company has a design department consisting of 12
designers who create new products, packaging and
merchandising concepts. In excess of 300 items were
developed or remodeled in 1996. New product lines for
sale in 1997 include:
Hoffritz: The Company plans to introduce approximately
100 Hoffritzr branded items in 1997 including barbecue
accessories, colanders and bowls, various caddies and
expansion of the pepper mills, cutting boards and
personal care lines.
Cutlery: Introduction of stainless steel knife caddies
with Ultrapro knives.
Gadgets: Introduction of various softgrip kitchen tools.
Cutting Boards: Continued expansion of the value added
approach, packaging boards with Farberwarer cutlery and
kitchen gadgets.
5
Source of Supply
The Company sources its products from approximately 40
manufacturers located primarily in the Far East,
including Japan, Indonesia, Taiwan, People's Republic of
China, Hong Kong, Thailand, Malaysia and to a small
extent in the United States and Italy. In 1996, cutlery
was purchased from four suppliers, whom individually
accounted for 40%, 34%, 15% and 11% of the total
purchased. An interruption of supply from any of these
manufacturers could have an adverse impact on the
Company's ability to fill orders on a timely basis.
However, the Company believes other manufacturers with
whom the Company does business would be able to increase
production to fulfill the Company's requirements.
The Company's policy is to maintain a large inventory
base and, accordingly, it orders products substantially
in advance of anticipated time of sale to its customers.
While the Company does not have any long-term formal
arrangements with any of its suppliers, in certain
instances, particularly in the manufacture of cutlery,
the Company places firm commitments for products up to
twelve months in advance of receipt of firm orders from
customers. Lifetime's arrangements with most
manufacturers allow for flexibility in modifying the
quantity, composition and delivery dates of each order.
All purchase orders are in U.S. dollars.
Marketing
The Company markets its product lines directly through
its own sales force and through a network of independent
sales representatives. The Company's products are
primarily sold in the United States to approximately
1,900 customers including national retailers, department
store chains, mass merchant retail and discount stores,
supermarket chains, warehouse clubs, direct marketing
companies, specialty chains and through other channels of
distribution. No customer accounted for 10% or more of
the Company's net sales during fiscal 1996.
Competition
The markets for household cutlery, kitchenware and
cutting boards are highly competitive and include
numerous domestic and foreign competitors, some of which
are larger than the Company. The primary competitive
factors in selling such products to retailers are
consumer brand name recognition, quality, packaging,
breadth of product line, distribution capability, prompt
delivery and price to the consumer.
Patents and Trademarks
The Company uses a number of owned trademarks, primarily
Hoffritzr, Tristarr and Hoanr as well as Farberwarer
which is licensed under a 200 year royalty-free
agreement, which it considers significant to its
competitive position. Some of these trademarks are
registered in the United States and others have become
distinctive marks as to which the Company has acquired
common law rights. The Company also has licensed several
other trademarks from The Walt Disney Company and The
Pillsbury Company which it uses in its business. The
Company also owns several design and utility patents
expiring from 2000 to 2013 on the overall design of some
of its knives (the handle and blade). The Company also
acquired patents, trademarks and copyrights as part of
the Hoffritzr purchase, expiring from 1999 to 2022. The
Company believes that the expiration of any of its
patents would not have a material adverse effect on its
business.
6
Seasonality
Although the Company sells its products throughout the
year, the Company has traditionally had higher net sales
during its third and fourth quarters. The following
table sets forth the quarterly net sales for the three
years ended December 31, 1996, 1995 and 1994:
Net Sales
(in thousands)
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
1996 $19,300 $21,000 $25,100 $33,000
1995 $18,700 $15,600 $22,100 $24,200
1994 $14,600 $15,500 $20,300 $27,000
Backlog
Lifetime receives projections on a seasonal basis from
its principal customers; however, firm purchase orders
are most frequently placed on an as needed basis. The
Company's experience has been that while there may be
some modifications of customers' projections, the Company
is able, with some degree of certainty, to predict its
product needs.
Lifetime's backlog at December 31, 1996 and 1995 was
approximately $3,714,000. The Company expects to fill
the 1996 backlog during 1997. The Company does not
believe that backlog is indicative of its future results
of operations or prospects. Although the Company seeks
commitments from customers well in advance of shipment
dates, actual confirmed orders are typically not received
until close to the required shipment dates.
Employees
As of December 31, 1996, the Company had 612 full-time
employees, of whom 4 were employed in an executive
capacity, 40 in sales, marketing and product development,
58 in financial, administrative or clerical capacities,
327 in warehouse or distribution capacities and 183 are
outlet store personnel. None of the Company's employees
are represented by a labor union. The Company considers
its employee relations to be good.
ITEM 2. PROPERTIES
The Company conducts its operations from four facilities,
exclusive of the Outlet Store subsidiary. The Company's
corporate headquarters located in Westbury, New York,
occupy approximately 42,000 square feet and was acquired
in October 1994 at an approximate cost of $6,850,000,
inclusive of building, furniture, fixtures and equipment.
The Company's primary warehouse and distribution facility
located in central New Jersey occupies approximately
305,000 square feet. The facility is leased pursuant to a
net lease subject to annual automatic renewals through
January 31, 1998. The annual rent is approximately
$1,084,000. The Company leased approximately 136,000
square feet of additional warehouse and distribution
space in 1995. The facility is leased through January 31,
1998 with an option to renew for an additional three
years. The annual rent is approximately $429,000.
The Company also leases an approximately 2,000 square
foot showroom in New York City. The annual rental is
approximately $43,000 and the lease expires on June 30,
1999.
7
The Company is designing a new state of the art
distribution center, which it expects to begin leasing in
the beginning of 1998.
The Company's Outlet Store subsidiary leases
approximately 50 stores in retail outlet centers located
in 25 states throughout the country. The square footage
of the stores range from approximately 2,000 square feet
to 4,500 square feet. The terms of these leases range
from three to five years with expiration dates beginning
in January 1997 and extending through April 2002.
ITEM 3. LEGAL PROCEEDINGS
The Company is not involved in any pending legal
proceedings other than non-material ordinary routine
litigation incidental to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
Not applicable.
8
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND
RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded under the symbol
"LCUT" on the over-the-counter market and has been quoted
on The Nasdaq National Market ("Nasdaq") since its
initial public offering, in June 1991. The Company
declared and paid stock dividends in 1992 and 1993 and
declared and paid a 3 for 2 stock split in 1993. On
December 14, 1994, the Board of Directors of the Company
declared a 10% stock dividend payable to shareholders of
record on December 27, 1994. On December 1, 1995, the
Board of Directors of the Company declared a 10% stock
dividend payable to shareholders of record on December
15, 1995. On February 5, 1997, the Board of Directors of
the Company declared a 10% stock dividend payable to
shareholders of record on February 18, 1997. All share
and per share data included in this report have been
retroactively adjusted to reflect the declaration and
payment of stock dividends. See Note A to the financial
statements.
The following table sets forth the high and low sales
prices for the Common Stock of the Company for the fiscal
periods indicated as reported by The Nasdaq Stock Market,
Inc.
1996 1995
High Low High Low
First Quarter $9.32 $7.27 $11.15 $9.30
Second Quarter $10.23 $7.27 $10.95 $8.68
Third Quarter $10.00 $8.30 $10.33 $7.70
Fourth Quarter $10.68 $7.84 $10.12 $7.84
On December 31, 1996, there were approximately 790
beneficial holders of the Common Stock of the Company.
The Company has not paid cash dividends on its Common
Stock. The Board of Directors currently intends to follow
a policy of retaining all earnings to finance the
continued growth and development of the Company's
business and does not anticipate paying cash dividends in
the foreseeable future. The payments of stock dividends
in December 1994, December 1995 and February 1997 are not
indicative of the payment of future stock dividends.
9
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data set forth below for the five
years in the period ended December 31, 1996 have been
derived from the audited financial statements of the
Company. The data for 1994 through 1996 should be read in
conjunction with "Item 7 - Management's Discussion and
Analysis of Financial Condition and Results of
Operations" and the audited financial statements and
related notes thereto included elsewhere herein.
<TABLE>
<CAPTIION>
(in thousands except per share data)
Year Ended December 31,
<S> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992
INCOME STATEMENT DATA:
Net sales $98,426 $80,495 $77,449 $64,740 $60,832
Cost of sales 50,528 43,531 41,726 34,991 33,278
Gross profit 47,898 36,964 35,723 29,749 27,554
Selling, general and 31,915 25,397 21,636 18,600 17,278
administrative expenses
Income from operations 15,983 11,567 14,087 11,149 10,276
Interest expense 671 401 124 124 186
Other income (net) (100) (148) (165) (357) (222)
Income before income taxes 15,412 11,314 14,128 11,382 10,312
Provision for federal, state and 6,060 4,387 5,498 4,377 4,130
local income taxes
Net income $9,352 $6,927 $8,630 $7,005 $6,182
Weighted average shares 12,675 12,753 12,618 12,452 12,273
outstanding
Net income per share $0.74 $0.54 $0.68 $0.56 $0.50
December 31,
1996 1995 1994 1993 1992
BALANCE SHEET DATA:
Current assets $61,884 $62,569 $53,885 $49,412 $42,073
Current liabilities 13,213 13,836 8,916 8,435 7,351
Working capital 48,671 48,733 44,969 40,977 34,722
Total assets 84,772 75,756 64,696 53,610 45,503
Current debt 1,000 4,600 _ _ _
Stockholders' equity $71,559 $61,920 $55,780 $45,175 $38,152
10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth the operating data of the
Company as a percentage of net sales for the periods
indicated below.
Year Ended December 31,
1996 1995 1994
Net Sales 100.0 % 100.0 % 100.0 %
Cost of Sales 51.3 54.1 53.9
Gross Profit 48.7 45.9 46.1
Selling, General and Adm. 32.4 31.5 27.9
Expense
Income From Operations 16.3 14.4 18.2
Interest Expense 0.8 0.5 0.2
Other Income (net) (0.1) (0.2) (0.2)
Income Before Income Taxes 15.6 14.1 18.2
Income Taxes 6.2 5.5 7.1
Net Income 9.4 % 8.6 % 11.1 %
1996 COMPARED TO 1995
Net Sales
Net sales for all products in 1996 were $98.4 million, an
increase of $17.9 million or 22.3% over 1995. The sales
growth was due principally to net sales from the
Farberware Outlet Stores which were acquired in April
1996 and the Hoffritz line, plus increased net sales of
cutting boards, the Smart Choice line, and Farberware
gadgets, partially offset by reduced sales of other
Company products.
Gross Profit
Gross profit for 1996 was $47.9 million, an increase of
$10.9 million or 29.6% over 1995. Gross profit as a
percentage of net sales was 48.7% in 1996 and 45.9% in
1995. The increase in gross profit as a percentage of
sales is attributable to reduced royalty expense in
connection with the Farberware acquisition as well as
change in product mix.
Selling, General and Administrative Expenses
As a percentage of net sales, selling, general and
administrative expenses were 32.4% for 1996, as compared
to 31.5% for 1995. Selling, general and administrative
expenses for 1996 were $31.9 million, an increase of $6.5
million or 25.7% from 1995. This increase is primarily
attributable to the operations of the Farberware Outlet
Stores, investments in additional personnel and new
facilities and increased freight out expenses directly
related to the increased sales.
11
Interest Expense
Interest expense for 1996 was $671,000, an increase of
$270,000 over 1995. This increase is due to increased
average borrowings under the Company's line of credit
used to finance the Farberware acquisition.
Preliminary Results of First Quarter 1997
Although final numbers are not yet available, the Company
expects net income for the three months ending March 31,
1997 will be approximately $1.3 million as compared to
$1.7 million for the comparable prior year quarter. This
projected decrease in net income would be due primarily
to operating losses from the Company's Outlet Store
subsidiary acquired in April 1996, and not included in
the comparable prior year's quarter.
1995 COMPARED TO 1994
Net Sales
Net sales for all products in 1995 were $80.5 million, an
increase of $3.0 million or 3.9% over 1994. The sales
growth was due principally to increased net sales of
cutting boards and the Smart Choice line, as well as
products sold under licenses, partially offset by reduced
sales of other Company products.
Gross Profit
Gross profit for 1995 was $37.0 million, an increase of
$1.2 million or 3.5% over 1994. Gross profit as a
percentage of net sales was 45.9% in 1995 and 46.1% in
1994.
Selling, General and Administrative Expenses
As a percentage of net sales, selling, general, and
administrative expenses were 31.5% for 1995, as compared
to 27.9% for 1994. Selling, general and administrative
expenses for 1995 were $25.4 million, an increase of $3.8
million or 17.4% from 1994. This increase is primarily
attributable to investments in additional personnel and
new facilities, as well as an increase in bad debt
expense.
Interest Expense
Interest expense for 1995 was $401,000, an increase of
$277,000 over 1994. This increase is due to increased
borrowings under the Company's line of credit to support
higher inventory levels and common stock repurchase.
12
LIQUIDITY AND CAPITAL RESOURCES
The Company has available an unsecured $25,000,000 line
of credit with a bank (the "Line") which may be used for
revolving credit loans or letters of credit.
Borrowings made under the Line bear interest payable
daily at a negotiated short term borrowing rate (average
daily rate for 1996 was 6.23%). As of December 31, 1996,
the Company had $1,000,000 of borrowings and $10,262,000
of letters of credit and trade acceptances outstanding
under the Line and, as a result, the availability under
the Line was $13,738,000. The Line is cancelable by
either party at any time.
In April 1996, the Company entered into an agreement to
acquire certain assets of Farberware, Inc.
("Farberware"). Under the terms of the acquisition
agreement and a joint venture agreed to by the Company
and Syratech Corporation in connection therewith, the
Company acquired a 200 year, royalty-free, exclusive
right to use the Farberwarer name in connection with the
product lines covered by its existing license agreement.
The Company also acquired 50 Farberware outlet stores and
the related inventory. In addition, rights to license the
Farberwarer name for use by third parties in certain
categories are held by the joint venture, owned equally
by the Company and a wholly owned subsidiary of Syratech
Corporation. This agreement will enable the Company to
market products under the Farberwarer name without paying
royalties. The purchase price consisted of cash of $12.7
million.
At December 31, 1996, the Company had cash and cash
equivalents of $1.1 million versus $90,000 at December
31, 1995, an increase of $1.0 million. Cash provided by
operating activities was approximately $19.0 million,
consisting primarily of net income, decreased inventory
levels, increased accounts payable, trade acceptances,
and accrued expenses and increased income taxes payable
partially offset by increased receivables resulting from
increased sales. Cash used in investing activities was
approximately $14.7 million, consisting of the
Farberware acquisition and fixed asset purchases. Cash
used in financing activities was approximately $3.3
million, consisting primarily of repayments of short term
borrowings.
Capital expenditures were approximately $2.0 million in
1996 and $0.7 million in 1995. Capital expenditures for
1996 consisted primarily of assets purchased in
connection with the Farberware acquisition and warehouse
machinery and equipment. Total planned capital
expenditures for 1997 are estimated at $9.0 million.
These expenditures are primarily for the new state of the
art distribution facility and the implementation of a new
financial reporting system. These expenditures will be
financed from current operations and, if needed, short
term borrowings.
Products are sold to retailers primarily on 30-day credit
terms, and to distributors primarily on 60-day credit
terms. As of December 31, 1996, the Company had an
aggregate of $333,000 of accounts receivable outstanding
in excess of 60 days. This represents approximately 2.2%
of gross receivables. The Company had inventory of $39.9
million as of that date.
The Company believes that its cash and cash equivalents
plus internally generated funds and its credit
arrangements will be sufficient to finance its operations
for the next 12 months.
13
The results of operations of the Company for the periods
discussed have not been significantly affected by
inflation or foreign currency fluctuation. The Company
negotiates its purchase orders with its foreign
manufacturers in United States dollars. Thus,
notwithstanding any fluctuation in foreign currencies,
the Company's cost for any purchase order is not subject
to change after the time the order is placed. However,
the weakening of the United States dollar against local
currencies could lead certain manufacturers to increase
their United States dollar prices for products. The
Company believes it would be able to compensate for any
such price increase.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements are included herein commencing
on page F-1.
The following is a summary of the quarterly results of
operations for the years ended December 31, 1996 and
1995.
Three Months Ended
March 31 June 30 September30 December 31
(Thousands of dollars, except per share data)
1996
Net sales $19,273 $20,990 $25,116 $33,046
Cost of sales 10,179 10,895 11,708 17,746
sales
Net income 1,673 $1,270 $2,873 3,536
Net income
per
common share $0.13 $0.10 $0.23 $0.28
1995
Net sales $18,678 $15,556 $22,094 $24,167
Cost of sales 9,663 8,252 11,759 13,857
Net income 1,766 1,023 2,364 1,774
Net income
per
common share $0.14 $0.08 $0.19 $0.14
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
14
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT
The following table sets forth certain information
concerning the Executive Officers and Directors of the
Company and its predecessor:
Director or
Executive
Officer of
Company or
Name Age Position its Predecessor
Since
Milton L. 68 Chairman of the 1958
Cohen Board of Directors
and President
Jeffrey 54 Executive Vice 1967
Siegel President
and Director
Craig 47 Vice-President - 1973
Phillips Distribution,
Secretary and
Director
Fred Spivak 44 Vice-President - 1984
Finance,
Finance, Treasurer
and Treasurer
Ronald 52 Director 1991
Shiftan
Howard 76 Director 1992
Bernstein
Mr. Cohen has been continuously employed by the Company
in his present capacity since 1958.
Mr. Siegel has been continuously employed by the
Company in his present capacity since 1967.
Mr. Phillips has been continuously employed by the
Company in his present capacity since 1981.
Mr. Spivak has been continuously employed by the
Company in his present capacity since 1984.
Mr. Shiftan has Managing Director of Patriot Group,
LLC, a financial advisory firm since 1996. From 1992 to
1996 Mr. Shiftan was Vice Chairman of HealthCare
Investment Corporation, a manager of private venture
capital partnerships. Prior thereto he was Managing
Director of Sphere Capital Partners, a financial advisory
firm which acted as financial advisor to the Company in
connection with its initial public offering in 1991.
Mr. Bernstein has been a member of the Certified Public
Accounting firm, Cole, Samsel & Bernstein LLC (and its
predecessors) for approximately forty-seven years.
Jeffrey Siegel and Craig Phillips are cousins.
The Board of Directors has established an audit
committee, all of whose members are independent
directors.
15
The directors and officers of the Company are elected
annually by the stockholders and Board of Directors of
the Company, respectively. They serve until the next
annual meeting of the stockholders or until their
successors have been elected and qualified or until their
earlier resignation or removal.
Directors who are not employees of the Company will
receive $5,000 per year, in addition to $1,000 for each
meeting of the Board attended, plus reimbursement of
reasonable out-of-pocket expenses. Directors who are
employees of the Company do not receive compensation for
serving as directors or attending meetings. The Company
has entered into indemnification agreements with the
directors and officers of the Company.
ITEM 11. EXECUTIVE COMPENSATION
There is hereby incorporated by reference the information
to appear under the caption "Executive Compensation" in
the Company's definitive Proxy Statement for its 1997
Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
There is hereby incorporated by reference the information
to appear under the caption "Principal Stockholders" in
the Company's definitive Proxy Statement for its 1997
Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There is hereby incorporated by reference the information
to appear under the caption "Certain Transactions" in the
Company's definitive Proxy Statement for its 1997 Annual
Meeting of Stockholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(a) (1) and (2) _ see list of Financial Statements and
Financial Statement Schedules on F-1.
(b) Reports on Form 8-K in the fourth quarter of 1996.
None.
(c) Exhibits*:
Exhibit
No. Description
3.1 Restated Certificate of Incorporation of the Company
(incorporated herein by reference to Exhibit 3[a] to
Form S-1 [No. 33-40154] of Lifetime Hoan
Corporation).
3.2 Amendment dated June 9, 1994 to the Restated
Certificate of Incorporation of the Company
(incorporated by reference to the December 31, 1994
Form 10-K [No. 1-19254] of Lifetime Hoan
Corporation).
16
3.3 By-Laws of the Company (incorporated herein by
reference to Exhibit 3[b] to Form S-1 [No. 33-40154]
of Lifetime Hoan Corporation).
10.1 Loan Agreement dated as of May 11, 1988 with Bank of
New York, as amended (incorporated by Reference to
Exhibit 10[d] to Form S-1 [No. 33-40154] of Lifetime
Hoan Corporation).
10.2 Amendment No. 6 dated as of March 5, 1992 between
Lifetime Hoan Corporation and The Bank of New York
(incorporated by reference to the December 31, 1991
Form 10-K [No. 1-19254] of Lifetime Hoan
Corporation).
10.3 Stock Option Plan for key employees of Lifetime Hoan
Corporation, as amended June 9, 1994 (incorporated
by reference to the December 31, 1994 Form 10-K [No.
1-19254] of Lifetime Hoan Corporation).
10.4 Promissory notes dated December 17, 1985 of Milton
L. Cohen, Jeffrey Siegel, Craig Phillips and Robert
Phillips, as amended (incorporated by reference to
Exhibit 10[f] to Form S-1 [No. 33-40154] of Lifetime
Hoan Corporation).
10.5 Lease to Dayton, New Jersey premises dated August
20, 1987 and amendment between the Company and
Isaac Heller (incorporated by reference to Exhibit
10[h] to Form S-1 [No. 33-40154] of Lifetime Hoan
Corporation).
10.6 License Agreement dated December 14, 1989 between
the Company and Farberware, Inc. (incorporated by
reference to Exhibit 10[j] to Form S-1 [No. 33-
40154] of Lifetime Hoan Corporation).
10.7 License Agreement dated as of April 19, 1991 between
the Company and The Pillsbury Company (incorporated
by reference to Exhibit 10[m] to Form S-1 [No. 33-
40154] of Lifetime Hoan Corporation).
10.8 Real Estate Sales Agreement dated October 28, 1993
between the Company and The Olsten Corporation
(incorporated by reference to the December 31, 1993
Form 10-K [No. 1-19254] of Lifetime Hoan
Corporation).
10.9 Amendment to the Real Estate Sales Agreement dated
September 26, 1994 between the Company and The
Olsten Corporation. (incorporated by reference to
the December 31, 1995 Form 10-K [No. 1-19254] of
Lifetime Hoan Corporation).
10.10 Lease to additional Dayton, New Jersey premises
dated December 7, 1994. (incorporated by reference
to the December 31, 1995 Form 10-K [No. 1-19254] of
Lifetime Hoan Corporation).
10.11 License Agreement dated December 21, 1995
between the Company and The Walt Disney Company.
10.12 Memorandum of purchase dated September 18, 1995
between the Company and Alco Capital Group, Inc.
(incorporated by reference to the September 30, 1995
Form 10-Q [No. 1-19254] of Lifetime Hoan
Corporation).
17
10.13 Registration Rights Agreement dated September
18, 1995 between the Company and Alco Capital Group,
Inc. (incorporated by reference to the September 30,
1995 Form 10-Q [No. 1-19254] of Lifetime Hoan
Corporation).
10.14 Amendment No. 1 dated September 26, 1995 to the
Lease for the additional Dayton, New Jersey
premises. (incorporated by reference to the
September 30, 1995 Form 10-Q [No. 1-19254] of
Lifetime Hoan Corporation).
10.15 Form of Extension Agreement dated as of
December 15, 1995 between Milton L. Cohen and
Lifetime Hoan Corporation (incorporated by reference
to the January 8, 1996 Form 8-K [No. 1-19254] of
Lifetime Hoan Corporation).
10.16 Form of Extension Agreement dated as of
December 15, 1995 between Jeffrey Siegel and
Lifetime Hoan Corporation (incorporated by reference
to the January 8, 1996 Form 8-K [No. 1-19254] of
Lifetime Hoan Corporation).
10.17 Form of Extension Agreement dated as of
December 15, 1995 between Craig Phillips and
Lifetime Hoan Corporation (incorporated by reference
to the January 8, 1996 Form 8-K [No. 1-19254] of
Lifetime Hoan Corporation).
10.18 Asset Purchase Agreement by and between
Farberware, Inc., Far-b Acquisition Corp., Syratech
Corporation and Lifetime Hoan Corporation, dated
February 2, 1996.
10.19 Joint Venture Agreement by and among Syratech
Corporation, Lifetime Hoan Corporation and Far-b
Acquisition Corp., dated February 2, 1996.
10.20 Employment Agreement dated April 7, 1996 with
Milton L. Cohen (incorporated by reference to the
March 31, 1996 10Q).
10.21 Employment Agreement dated April 7, 1996 with
Jeffrey Siegel (incorporated by reference to the
March 31, 1996 10Q).
.
10.22 Employment Agreement dated April 7, 1996 with
Craig Phillips (incorporated by reference to the
March 31, 1996 10Q).
10.23 Lifetime Hoan 1996 Incentive Stock Option Plan
(incorporated by reference to the March 31, 1996
10Q).
10.24 Lifetime Hoan 1996 Incentive Bonus Compensation
Plan (incorporated by reference to the March 31,
1996 10Q).
21 Subsidiaries of the registrant
23 Consent of Ernst & Young LLP.
27 Financial Data Schedule
*The Company will furnish a copy of any of the exhibits
listed above upon payment of $5.00 per exhibit to cover
the cost of the Company furnishing the exhibits.
(d) Financial Statement Schedules _ the response to this
portion of Item 14 is submitted as a separate
section of this report.
18
FORM 10-K -- ITEM 14(a)(1) and (2)
LIFETIME HOAN CORPORATION
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT
SCHEDULE
The following Financial Statements and Schedule of
Lifetime Hoan Corporation are included in Item 8.
Report of Independent Auditors F-2
Consolidated Balance Sheets as of December 31, 1996 and 1995 F-3
Consolidated Statements of Income for the
Years ended December 31, 1996, 1995 and 1994 F-4
Consolidated Statements of Changes in Stockholders' Equity for the
Years ended December 31, 1996, 1995 and 1994 F-5
Consolidated Statements of Cash Flows for the
Years ended December 31, 1996, 1995 and 1994 F-6
Notes to Consolidated Financial Statements F-7
The following financial statement schedule of Lifetime Hoan Corporation is
included in Item 14 (d);
Schedule II - Valuation and qualifying accounts F-15
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
F-1
REPORT OF INDEPENDENT AUDITORS
Stockholders and Board of Directors
Lifetime Hoan Corporation
We have audited the accompanying consolidated balance
sheets of Lifetime Hoan Corporation as of December 31,
1996 and 1995 and the related consolidated statements of
income, stockholders' equity, and cash flows for each of
the three years in the period ended December 31, 1996.
Our audits also included the financial statement schedule
listed in the Index at Item 14(a). These consolidated
financial statements and schedule are the responsibility
of the Company's management. Our responsibility is to
express an opinion on these consolidated financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require
that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free
of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also
includes assessing the accounting principles used and
significant estimates made by management, as well as
evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to
above present fairly, in all material respects, the
consolidated financial position of Lifetime Hoan
Corporation at December 31, 1996 and 1995 and the
consolidated results of their operations and their cash
flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted
accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the
information set forth therein.
Ernst & Young LLP
Melville, New York
February 12, 1997
F-2
CONSOLIDATED BALANCE SHEETS
LIFETIME HOAN CORPORATION
</TABLE>
<TABLE>
<CAPTION>
December 31
<S> <C> <C>
December 31,
ASSETS 1996 1995
CURRENT ASSETS
Cash and cash equivalents $1,093,432 $89,797
Accounts receivable, less allowances of $791,000
(1996) and $663,000 (1995) 14,000,366 12,682,401
Merchandise inventories 39,916,990 43,337,000
Prepaid expenses 4,930,194 4,578,813
Deferred income taxes 1,018,000 1,186,000
Other current assets 925,181 695,241
TOTAL CURRENT ASSETS 61,884,163 62,569,252
PROPERTY AND EQUIPMENT, at cost, net of accumulated
depreciation and amortizaion of $4,016,403 (1996) ) and
and $2,841,202 (1995) 8,696,802 7.882.166
EXCESS OF COST OVER NET ASSETS ACQUIRED, net of
accumulated amortization of $773,300 (1996) and
$708,100 (1995) 1,905,902 1,971,102
OTHER INTANGIBLES, net of accumulated amortization of
$335,250 (1996) and $24,000 (1995) 11,340,884 2,452,748
OTHER ASSETS 944,164 880,766
$84,771,915 $75,756,034
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and trade acceptances $4,012,132 $3,072,401
Accrued expenses 6,882,422 5,931,414
Income taxes 1,318,728 232,447
Short term borrowings 1,000,000 4,600,000
TOTAL CURRENT LIABILITIES 13,213,282 13,836,262
STOCKHOLDERS' EQUITY
Series B Preferred stock, $1 par value, authorized
2,000,000 shares; none
issued
Common stock, $.01 par value, authorized 25,000,000 shares;
issued and outstanding 12,406,509, shares in 1996 and
11,257,276 shares in 1995 124,065 112,573
Paid-in-capital 74,756,842 61,103,589
Retained earnings (See page F-5) (2,336,661) 1,845,007
72,544,246 63,061,169
Less:
Notes receivable for shares issued to
stockholders 908,064 1,048,064
Deferred compensation 77,549 93,333
71,558,633 61,919,772
$84,771,915 $75,756,034
See notes to consolidated financial statements.
F-3
CONSOLIDATED STATEMENTS OF INCOME
LIFETIME HOAN CORPORATION
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
<S> <C> <C> <C>
1996 1995 1994
Net sales $98,426,445 $80,494,661 $77,449,279
Cost of sales 50,528,212 43,530,828 41,725,973
47,898,233 36,963,833 35,723,306
Selling, general and 31,914,952 25,396,863 21,636,304
administrative expenses
INCOME FROM OPERATIONS 15,983,281 11,566,970 14,087,002
Other (income) deductions:
Interest expense 670,838 400,577 123,966
Other (income), net (99,717) (147,870) (165,137)
INCOME BEFORE INCOME TAXES 15,412,160 11,314,263 14,128,173
Provision for federal, state and
local
income taxes 6,060,000 4,387,000 5,498,000
NET INCOME $9,352,160 $6,927,263 $8,630,173
NET INCOME PER SHARE $0.74 $0.54 $0.68
See notes to consolidated financial statements
F-4
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
LIFETIME HOAN CORPORATION
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Notes
Common Stock Paid-in Retained Receivable Deferred
Shares Amount Capital Earnings from Compensation Total
Stockholders
Balance at December 9,122,743 $91,227 $39,136,881 $7,278,383 ($1,183,712) ($147,350) 45,175,429
31, 1993
Grant of stock options 28,350 (28,350) _
Exercise of stock options12,884 129 103,235 103,364
Exercise of warrants 264,424 2,644 1,834,952 1,837,596
Net income for the
year ended
December 31, 1994 8,630,173 8,630,173
Amortization of 33,512 33,512
deferred compensation
Stock dividend 939,962 9,400 11,035,154 (11,044,554) _
Balance at December
31, 1994 10,340,013 103,400 52,138,572 4,864,002 ($1,183,712) (142,188) 55,780,074
Exercise of stock options40,046 401 252,336 252,737
options
Exercise of warrants 6,810 68 43,379 43,447
Stock issued in 46,512 465 476,283 476,748
exchange for intangibles
Repurchase and
retirement of common (199,442) (1,994) (1,006,781) (736,225) 135,648 (1,609,352)
stock
Net income for the
year ended
December 31, 1995 6,927,263 6,927,263
Amortization of 48,855 48,855
deferred compensation
Stock dividend 1,023,337 10,233 9,199,800 (9,210,033) _
Balance at December
31, 1995 11,257,276 112,573 61,103,589 1,845,007 (1,048,064) (93,333) 61,919,772
Exercise of stock options20,356 203 124,567 124,770
Exercise of warrants 1,058 11 6,136 6,147
Repayment of note 140,000 140,000
receivable
Net income for the
year ended
December 31, 1996 9,352,160 9,352,160
Amortization of
deferred compensation 15,784 15,784
Stock dividend 1,127,819 11,278 13,522,550 (13,533,828) _
Balance at December
31, 1996 12,406,509 $124,065 $74,756,842 ($2,336,661) ($908,064) ($77,549) $71,558,633
See notes to consolidated financial statements
F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS
LIFETIME HOAN CORPORATION
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1996 1995 1994
OPERATING ACTIVITIES
Net income $9,352,160 $6,927,263 $8,630,173
Adjustments to reconcile net income to
net cash
provided by (used in) operating
activities:
Depreciation and amortization 1,571,853 905,464 644,179
Deferred taxes 168,000 (357,000) (233,000)
Amortization of deferred compensation 15,784 48,855 33,512
Provision for losses on accounts 4,088,783 4,220,300 3,373,183
receivable
Loss on sale of marketable securities, _ _ 93,122
net
Changes in operating assets and
liabilities excluding effect
of acquisitions:
Accounts receivable (5,406,748) (2,836,102) (7,331,052)
Merchandise inventories 6,920,010 (12,330,000) (2,215,000)
Prepaid expenses, other current assets
and other assets (644,719) (103,558) (2,246,497)
Accounts payable and trade acceptances
and accrued expenses 1,890,739 988,798 623,813
Income taxes payable 1,086,281 (668,203) (142,933)
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 19,042,143 (3,204,183) 1,229,500
INVESTING ACTIVITIES
Purchase of property and equipment, net (2,010,039) (717,281) (7,159,993)
Purchase of intangibles and store (12,699,386) (2,000,000) _
inventory
Purchases of marketable securities _ _ (9,679,866)
Proceeds from sales of marketable _ _ 9,586,744
securities
NET CASH (USED IN)
INVESTING ACTIVITIES (14,709,425) (2,717,281) (7,253,115)
FINANCING ACTIVITIES
Proceeds from (repayments of) short (3,600,000) 4,600,000 _
term borrowings, net
Proceeds from the exercise of warrants 6,147 43,447 1,837,596
Proceeds from the exercise of stock 124,770 252,737 103,364
options
Repayment of note receivable from 140,000 _ _
stockholder
Repurchase of common stock, net _ (1,609,352) _
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES (3,329,083) 3,286,832 1,940,960
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 1,003,635 (2,634,632) (4,082,655)
Cash and cash equivalents at beginning 89,797 2,724,429 6,807,084
of year
CASH AND CASH EQUIVALENTS AT END OF $1,093,432 $89,797 $2,724,429
YEAR
See notes to consolidated financial statements
F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LIFETIME HOAN CORPORATION
NOTE A _ SIGNIFICANT ACCOUNTING POLICIES
Business: The accompanying financial statements include the
accounts of Lifetime Hoan Corporation ("Lifetime") and Outlet
Retail Stores, Inc. ("Outlets"), Lifetime's wholly-owned
subsidiary, collectively the "Company".
The Company is engaged in the design, marketing and
distribution of household cutlery, kitchenware and cutting
boards, sold under a number of widely recognized tradenames
and through licensing agreements. The Company sells its
products primarily to retailers throughout the United States
and to consumers through its Outlets subsidiary.
Revenue Recognition: Revenue is recognized upon the
shipment of merchandise.
Inventories: Merchandise inventories, principally finished
goods, are recorded at the lower of cost (first-in, first-out
basis) or market.
Property and Equipment: Fixed assets other than leasehold
improvements are being depreciated on the straight-line method
over the estimated useful lives of the assets. Building and
improvements are being depreciated over 30 years. Leasehold
improvements are being amortized over the term of the lease or
the estimated useful lives of the improvements, whichever is
shorter.
Cash Equivalents: The Company considers highly liquid debt
instruments, with a maturity of three months or less when
purchased, to be cash equivalents.
Accounting Estimates: The preparation of financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and
assumptions that affect the financial statements and
accompanying notes. Actual results could differ from those
estimates.
Excess of Cost Over Net Assets Acquired and Other
Intangibles: Excess of cost over net assets acquired is being
amortized on a straight-line basis over 40 years. Other
intangibles consist of a royalty-free license, trademark and
brandname acquired pursuant to two acquisitions (see Note J)
and are being amortized on a straight-line basis over 30
years.
F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS _ continued
LIFETIME HOAN CORPORATION
NOTE A _ SIGNIFICANT ACCOUNTING POLICIES (continued)
Recent Accounting Pronouncement: In March 1995, the
Financial Accounting Standards Board issued Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of", which requires
impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. Statement
No. 121 also addresses the accounting for long-lived assets
that are expected to be disposed of. The Company adopted
Statement No. 121 in the first quarter of 1996 and such
adoption did not have any effect on the consolidated financial
statements.
Net Income Per Share: Net income per common share is based
upon net income divided by the weighted average number of
common shares and equivalents outstanding during the
respective periods, retroactively adjusted to reflect stock
dividends (see Note E). The weighted average number of common
shares used in the computation of net income per share were
12,674,643, 12,753,066, and 12,617,697 for the years ended
December 31, 1996, 1995 and 1994, respectively.
NOTE B _ PROPERTY AND EQUIPMENT
Property and equipment consist of: December 31
1996 1995
Land $832,000 $832,000
Building and improvements 4,615,793 4,586,903
Machinery, furniture and equipment 7,237,520 5,276,573
Leasehold improvements 27,892 27,892
12,713,205 10,723,368
Less accumulated depreciation and 4,016,403 2,841,202
amortization
$8,696,802 $7,882,166
NOTE C _ ACCRUED EXPENSES
Accrued expenses consist of:
December 31
1996 1995
Royalties $466,000 $641,000
Commissions 557,000 635,000
Contract costs 3,267,000 3,248,000
Other 2,592,422 1,407,414
$6,882,422 $5,931,414
NOTE D _ LINE OF CREDIT
The Company has available an unsecured $25,000,000 line of
credit with a bank (the "Line") which may be used for short
term borrowings, letters of credit or trade acceptances. As of
December 31, 1996, the Company had borrowings of $1,000,000
and letters of credit and trade acceptances of $10,262,000
outstanding. The Line is cancelable by either party at any
time.
F-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS _ continued
LIFETIME HOAN CORPORATION
NOTE D _ LINE OF CREDIT (continued)
Borrowings made under the Line bear interest payable daily
at a negotiated short term borrowing rate, (average daily rate
for 1996 was 6.23%). The Company is charged a nominal fee on
the entire Line.
The Company paid interest of approximately $671,000,
$401,000 and $124,000 during the years ended December 31,
1996, 1995 and 1994, respectively.
NOTE E _ CAPITAL STOCK
Stock Dividends: Effective on June 9, 1994, the
shareholders of the Company approved an increase in the number
of authorized shares of Common Stock from 10,000,000 to
25,000,000. In each of 1995 and 1994, the Board of Directors
of the Company declared a 10% stock dividend. On February 5,
1997, the Board of Directors of the Company declared a 10%
stock dividend to shareholders of record on February 18, 1997,
payable February 26, 1997. The stock dividend is recorded at
its market value, $12.00 per share. All common stock data in
the consolidated financial statements give retroactive effect
to the February 1997 stock dividend.
Warrants: In 1996, 1995 and 1994, 1,058, 6,810 and
264,424, respectively, of warrants were exercised. The net
proceeds from the exercises in 1996, 1995 and 1994 were
$6,147, $43,447 and $1,837,596, respectively. There are no
outstanding warrants as of December 31, 1996.
Stock Option Plans: The Company has a Stock Option Plan
(the "Plan") pursuant to which options may be granted to key
employees of the Company, including directors and officers. On
June 9, 1994, the shareholders of the Company approved an
amendment to the Plan to increase the shares available for
issuance from 500,000 to 1,500,000 shares of Common Stock. The
Plan authorizes the Board of Directors of the Company to issue
incentive stock options as defined in Section 422A (b) of the
Internal Revenue Code and stock options that do not conform to
the requirements of that Section of the Code. All options
expire on the tenth anniversary of the date of grant and vest
over a four year period commencing on the date of grant.
In June 1996, the stockholders of the Company approved
the adoption of the Lifetime Hoan Corporation 1996 Incentive
Stock Option Plan (the "ISO Plan"). The ISO Plan authorizes
the granting of 250,000 options to purchase Common Stock to
officers of the Company and its subsidiary. No individual
officer may be granted more than 175,000 options to purchase
Common Stock. The ISO Plan authorizes the issuance of
incentive stock options as defined in Section 422 of the
Internal Revenue Code. All options expire on the fifth
anniversary of the date of grant and vest in one year from the
date of grant.
F-9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS _ continued
LIFETIME HOAN CORPORATION
NOTE E _ CAPITAL STOCK (continued)
The Company has elected to follow Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25") and related Interpretations in
accounting for its employee stock options because, as
discussed below, the alternative fair value accounting
provided for under Statement of Financial Accounting Standard
No. 123, "Accounting for Stock-Based Compensation" ("Statement
123"), requires use of option valuation models that were not
developed for use in valuing employee stock options. Under
APB 25, because the exercise price of the Company's employee
stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recognized.
Pro forma information regarding net income and net income
per share is required by Statement 123, and has been
determined as if the Company has accounted for its employee
stock options under the fair value method of that Statement.
The fair value for these options was estimated at the date of
grant using a Black-Scholes option valuation model with the
following weighted average assumptions: risk free interest
rates of 6.34% and 6.43%; no dividend yields; volatility
factor of the expected market price of the Company's common
stock of .35; and a weighted-average expected life of the
options of 4.8 and 6.0 years at December 31, 1996 and 1995,
respectively.
The Black-Scholes option valuation model was developed
for use in estimating fair value of traded options which have
no vesting restrictions and are fully transferable. In
addition, option valuation models require the input of highly
subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have
characteristics significantly different from those of traded
options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its
employee stock options.
The Company's required pro forma net income and net
income per share calculated under Statement 123's fair value
method is not materially different from amounts reported under
APB 25.
The following summarizes stock option transactions:
1996 1995 1994
Shares Weighted Shares Weighted Shares Weighted
Under Average Under Average Under Average
Option Exercise Option Exercise Option Exercise
Price Price Price
Balance-Jan 1, 625,633 $5.43 614,209 $5.40 559,916 $5.32
Grants 202,750 $8.45 14,600 $9.37 29,500 $7.66
Exercised (20,356) $5.57 (40,046) $5.19 (12,884) $6.03
Canceled (18,061) $6.30 (20,005) $5.93 (18,160) $4.78
Stock 78,997 56,875 55,837
Dividends
Balance -
Dec 31, 868,963 $6.19 625,633 $5.43 614,209 $5.40
F-10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS _ continued
LIFETIME HOAN CORPORATION
NOTE E _ CAPITAL STOCK (continued)
The weighted average fair value of options granted during the
years ended December 31, 1996 and 1995 were $3.85 and $5.19,
respectively.
The following table summarizes information about employees
stock options outstanding at December 31, 1996:
Weighted-
Options Options Average
Exercise Outstan Exercisab Remaining
Price ding le Contractual
Life
$4.31 - $5.51 385,357 385,357 5.3 years
$6.39 - $8.41 384,216 115,694 7.7 years
$8.83 - $10.33 99,390 89,789 5.2 years
868,963 590,840 6.4 years
In connection with the grant of certain options, the Company
recorded, and is amortizing, deferred compensation.
In connection with the exercise of options under a stock
option plan which has since expired, the Company received cash
of $255,968 and notes in the amount of $903,712. The notes
bear interest at 9% and are due no later than December 31,
2000.
NOTE F _ INCOME TAXES
The Company uses the liability method as required by
Statement of Financial Accounting Standard No. 109 "Accounting
for Income Taxes". Under this method, deferred tax assets and
liabilities are determined based on the differences between
financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that
will be in effect when the differences are expected to
reverse.
Income taxes consist of:
Year Ended December 31,
1996 1995 1994
Current:
Federal $4,813,000 $3,875,000 $4,584,000
State and local 1,079,000 869,000 1,147,000
Deferred 168,000 (357,000) (233,000)
PROVISION FOR INCOME TAXES $6,060,000 $4,387,000 $5,498,000
Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amount of assets
and liabilities for financial reporting purposes and the
amounts used for income tax purposes. Significant components
of the Company's net deferred tax assets are as follows:
F-11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS _ continued
LIFETIME HOAN CORPORATION
NOTE F _ INCOME TAXES (continued)
December 31,
1996 1995
Merchandise inventories $1,054,000 $1,120,000
Accounts receivable
allowances 313,000 200,000
Other (349,000) (134,000)
$1,018,000 $1,186,000
The provision for income taxes on historical income differs
from the amounts computed by applying the applicable federal
statutory rates as follows:
Year Ended December 31
1996 1995 1994
Provision for Federal income
taxes at
the statutory rate $5,240,000 $3,847,000 $4,945,000
Increases (decreases):
State and local income
taxes net of
Federal income tax benefit 712,000 574,000 746,000
Other 108,000 (34,000) (193,000)
PROVISION FOR INCOME TAXES $6,060,000 $4,387,000 $5,498,000
The Company paid income taxes (net of refunds) of
approximately $4,830,000, $5,428,000, and $5,912,000 during
the years ended December 1996, 1995 and 1994, respectively.
NOTE G _ COMMITMENTS
Operating Leases: The Company has lease agreements for its
warehouse, showroom facilities and outlet stores which expire
through April 30, 2002. These leases provide for, among other
matters, annual base rent escalations and additional rent for
real estate taxes and other costs.
Aggregate minimum rentals on operating leases are as
follows:
Year ended December 31:
1997 $3,075,000
1998 1,104,000
1999 690,000
2000 332,000
2001 184,000
Thereafter 21,000
$5,406,000
00
Rental and related expenses on the operating leases were
approximately $3,570,000, $1,315,000, and $1,199,000 for the
years ended December 31, 1996, 1995 and 1994, respectively.
F-12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS _ continued
LIFETIME HOAN CORPORATION
NOTE G _ COMMITMENTS (continued)
The Company has issued a letter of credit of approximately
$279,000 which is held by the landlord as security for its
warehouse leases.
Royalties: At December 31, 1996, aggregate minimum payments
due under royalty agreements were approximately $280,000 and
are payable through 1997 (See Note J).
Employment Agreements: In April 1996, the Company entered
into employment agreements with its President and Executive
Vice President, providing for annual salaries of $700,000 and
$400,000 respectively, and for the payment of bonuses pursuant
to the Company's 1996 Incentive Bonus Compensation Plan (the
"Bonus Plan") (see below). The employment agreements continue
through April 1999, thereafter for additional periods of one
year unless terminated by either the Company or the executive.
In April 1996, the Company entered into an employment
agreement with its Vice President-Manufacturing, providing for
an annual salary of $150,000.
Incentive Bonus Compensation Plan: In April 1996, the
Board of Directors adopted and in June 1996, the stockholders
approved the Bonus Plan. The Bonus Plan provides the award of
a bonus, with respect to each of the ten fiscal years of the
Company beginning with the 1996 fiscal year, to the President
and the Executive Vice President of the Company. The bonus
payable to each executive is an amount equal to 3.5% of pretax
income, before any provision for executive compensation, stock
options exercised during the year under the Company's 1991
Stock Option Plan and extraordinary items. During the year
ended December 31, 1996 the Company recorded compensation
expense of approximately $1.2 million pursuant to the Bonus
Plan.
NOTE H _ RELATED PARTY TRANSACTION
In May 1993, the Company loaned $140,000 to a director of
the Company for the exercise of stock options. The loan had
an interest rate of 9%, payable quarterly. The loan and
accrued interest was repaid in May 1996.
In connection with the Farberware acquisition, a director
of the Company was paid $292,000 for a financial advisory fee.
NOTE I _ RETIREMENT PLAN
The Company established a defined contribution retirement
plan ("the Plan") for eligible employees under Section 401(k)
of the Internal Revenue Code effective January 1, 1994.
Participants can make voluntary contributions up to a maximum
of 15% of their salary. The Company made no contributions to
the Plan in 1996, 1995 and 1994.
F-13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS _ continued
LIFETIME HOAN CORPORATION
NOTE J _ ACQUISITIONS
Farberware Acquisition: In April, 1996, the Company
together with an unrelated third party, Syratech Corporation,
acquired certain assets of Farberware, Inc. ("Farberware")
including the assignment to the Company of a 200 year, royalty-
free, exclusive right to use the Farberwarer name in
connection with the product lines covered by its previous
license agreement with Farberware. The Company also acquired
all of the Farberware outlet stores, including inventory.
Rights to license the Farberwarer name for use by third
parties are held by a joint venture, owned equally by the
Company and Syratech Corporation. The Company's portion of
the purchase price was $12.7 million, of which $9.2 million
was attributed to the royalty-free exclusive right to use the
Farberwarer name as mentioned above. The Company is jointly
and severally liable for the obligations of Syratech
Corporation under the terms of the agreement. The Company will
be indemnified by Syratech Corporation for any losses it may
incur as a result of their failure to perform such
obligations.
Hoffritz Acquisition: In September 1995, the Company
acquired the Hoffritzr trademarks and brand name. The
purchase price consisted of cash and the issuance of 46,512
shares of Common Stock, valued at $10.25, the market price at
the date of the issuance.
NOTE K _ CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company
to significant concentrations of credit risk consist
principally of cash and equivalents and trade accounts
receivable.
The Company maintains cash and equivalents with various
financial institutions. The Company performs periodic
evaluations of the relative worthiness of its investments
which are considered in the Company's investment strategy.
Concentrations of credit risk with respect to trade
accounts receivable are limited due to the large number of
entities comprising the Company's customer base and their
dispersion across the United States. The Company's accounts
receivable are not collateralized. Credit losses have
consistently been within management's expectations. The
Company periodically reviews the status of its accounts
receivable and accordingly establishes an allowance for
doubtful accounts.
F-14
LIFETIME HOAN CORPORATION
Schedule II - Valuation and Qualifying Accounts
Lifetime Hoan Corporation
</TABLE>
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<CAPTION>
<S> <C> <C> <C> <C <C>
>
COL. A COL. B COL. C COL. D COL. E
Additions
Balance (1)
at Charged
to
Beginnin Costs and Deductio Balance
g of ns at
Description Period Expenses Describe end of
period
Year ended December
31, 1996
Deducted from asset
accounts:
Allowance for
doubtful
acconts $75,000 $500,080 $500,080 (a) $75,000
Reserve for sales
returns and allowances 588,000 3,588,703 3,460,703 (b) 716,000
$663,000 $4,088,783 $3,960,783 $791,000
Year ended December
31, 1995
Deducted from asset
accounts:
Allowance for
doubtful
accounts $75,000 $534,399 $534,399 (a) $75,000
Reserve for sales
returns and allowances 485,000 3,685,901 3,582,901 (b) 588,000
$560,000 $4,220,300 $4,117,300 $663,000
Year ended December
31, 1994
Deducted from asset
accounts:
Allowance for
doubtful
accounts $100,000 $21,875 $46,875 (a) $75,000
Reserve for sales
returns and allowances 291,000 3,351,308 3,157,308 (b) 485,000
$391,000 $3,373,183 $3,204,183 $560,000
(a) Uncollectible accounts written off, net of
recoveries.
(b) Allowances granted.
F-15
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Lifetime Hoan
Corporation
/s/ Milton L. Cohen
Milton L. Cohen
Chairman of the Board
of Directors and
President
(Principal Executive
Officer)
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Signature Title Date
/s/ Milton L. Cohen
Milton L. Cohen Chairman of the Board of March 28, 1997
Directors and President
(Principal Executive Officer)
/s/ Jeffrey Siegel
Jeffrey Siegel Executive Vice-President March 28, 1997
and Director
/s/ Craig Phillips
Craig Phillips Vice-President - Distribution, March 28, 1997
Secretary and Director
/s/ Fred Spivak
Fred Spivak Vice-President - Finance March 28, 1997
and Treasurer
(Principal Financial and
Accounting Officer)
/s/ Ronald Shiftan
Ronald Shiftan Director March 28, 1997
/s/ Howard Bernstein
Howard Bernstein Director March 28, 1997
Exhibit 21. Subsidiaries of the Registrant
Outlet Retail Stores, Inc.
Incorporated in the state of Delaware
Exhibit 23. Consent of Ernst & Young LLP
We consent to the incorporation by reference in the
Registration Statement (Form S-8 No. 33-51774) of
Lifetime Hoan Corporation pertaining to the 1991 Stock
Option Plan, of our report dated February 12, 1997, with
respect to the consolidated financial statements and
schedule of Lifetime Hoan Corporation included in the
Annual Report (Form 10-K) for the year ended December 31,
1996.
Ernst & Young LLP
Melville, New York
March 28, 1997
Exhibit 27. Financial Data Schedule
Lifetime Hoan Corporation
Financial Data Schedule
Pursuant to Item 601(c) of Regulation S-K
This schedule contains summary financial information
extracted
from the financial statements included in the form 10-K
for the twelve months ended December 31, 1996.
Item Item Description Amount
Number
5-02(1) Cash and Cash Items $ 1,093,432
5-02(2) Marketable Securities $ 0
5- Notes and Accounts Receivable - $ 14,075,366
02(3)(a)(1 Trade
)
5-02(4) Allowances for Doubtful $ 75,000
Accounts
5-02(6) Inventory $ 39,916,990
5-02(9) Total Current Assets $ 61,884,163
5-02(13) Property, Plant and Equipment $ 12,713,205
5-02(14) Accumulated Depreciation $ 4,016,403
5-02(18) Total Assets $ 84,771,915
5-02(21) Total Current Liabilities $ 13,213,282
5-02(22) Bonds, Mortgages and Similar $ 0
Debt
5-02(28) Preferred Stock - Mandatory $ 0
Redemption
5-02(29) Preferred Stock - No Mandatory $ 0
Redemption
5-02(30) Common Stock $ 124,065
5-02(31) Other Stockholders' Equity $ 71,434,568
5-02(32) Total Liabilities and $ 84,771,915
Stockholders' Equity
5- Net Sales of Tangible Products $ 98,012,394
03(b)1(a)
5-03(b)1 Total Revenues $ 98,426,445
5- Cost of Tangible Goods Sold $ 50,528,212
03(b)2(a)
5-03(b)2 Total Costs and Expenses
Applicable
to Sales and Revenues $ 50,528,212
5-03(b)3 Other Costs and Expenses $ 0
5-03(b)5 Provision for Doubtful Accounts $ 500,080
and Notes
5-03(b)(8) Interest and Amortization of $ 670,838
Debt Discount
5- Income Before Taxes and Other $ 15,412,160
03(b)(10) Items
5- Income Tax Expense $ 6,060,000
03(b)(11)
5- Income/Loss Continuing $ 9,352,160
03(b)(14) Operations
5- Discontinued Operations $ 0
03(b)(15)
5- Extraordinary Items $ 0
03(b)(17)
5- Cumulative effect - Changes in $ 0
03(b)(18) Accounting
Principles $ 0
5- Net Income or Loss $ 9,352,160
03(b)(19)
5- Earnings Per Share - Primary $ 0.74
03(b)(20)
5- Earnings Per Share - Fully $ 0.74
03(b)(20) Diluted
_______________________________
1
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